US steel and aluminium tariffs enacted by US President Donald Trump on Friday will have a minimal impact on Australia, says AMP Capital.
In a note, AMP Capital chief economist Shane Oliver said there was “reason for optimism” that a global trade war would not eventuate from President Trump’s 25 per cent and 10 per cent tariffs on steel and aluminium imports, respectively.
“The tariffs will cover less than 2 per cent of US imports,” Mr Oliver said, comparing it to the 19 per cent tariff hike that happened in 1930 under the Smoot-Hawley Act.
“The direct impact on Australia in relation to steel and aluminium exports to the US is trivial, as less than 0.02 per cent of GDP is directly affected,” he added.
“So the real risk would come if there was a full-blown trade war affecting key markets for our raw materials in China and Asia generally.
“But as noted, there is reason to see this as unlikely,” Mr Oliver said.
He also pointed out that President Trump had signalled American allies, such as Australia, could be exempt from the tariffs.
“Another case of Trump’s bark being worse than his bite. As a business negotiator he was well known for coming in with an extreme position to use as a bargaining chip and it’s likely he is doing the same here,” he said.
Although a trade war did not appear immediately imminent, Mr Oliver indicated that China was likely a key focus of the tariff and pointed out that Trump had warned of more tariffs on the horizon.
“While there may not be a full-on trade war, there may be no peace on the trade front either,” Mr Oliver said.
However, University of New South Wales (UNSW) Business School academic Fariborz Moshirian warned that the damage of the tariffs could be global and farther-reaching than just economic in nature.
"We need to strengthen the WTO and its executive power to deal with these kind [sic] of situations, because the introduction of tariffs could, and often does, lead to retaliating actions,” said Mr Moshirian.
“Just when the world economy is getting past the decade of slow growth it has had, the last thing we want to see is the kind of tit-for-tat sanctions we are likely to see.”
The UNSW academic urged nations not to overreact, and continue promoting free trade and "peaceful consultation with the US administration".
“If trade protectionism becomes the norm, it will lead to slow economic activities in China and other parts of the world including the US and the EU.
“The world economy could suffer badly as an unintended consequence," Mr Moshirian said.
On 6 March, InvestorDaily reported on comments by Saxo Bank chief economist Steen Jakobsen’s, who said the tariffs would be ‘hugely damaging’.